Why You Should have a Buy-Sell Agreement
Contrary to what many people may believe, a buy-sell agreement does not govern a transaction in which one company buys another company. Instead, this agreement is between the co-owners of the same business, and it serves a very specific purpose to help maintain ownership interests in the company. Specifically, these agreements dictate when owners have the right to purchase another owner’s interest before it goes to another party.
Buy-sell agreements can come into play in numerous situations when one owner’s interests may be in jeopardy. Such situations include:
- An owner needs to file for bankruptcy
- An owner wants to retire
- An owner passes away
- An owner gets divorced
The following is one example when a buy-sell agreement might come into play. A company has four owners and one of them is getting divorced. As part of the marital property division determination, the court awards half of the owner’s interests to their former spouse. In most cases, the other three owners would not want the former spouse to suddenly have a significant say in the business. To prevent this, the owners should have a solid buy-sell agreement that requires the former spouse to sell any business interests received in a divorce to the owners or the company.
Buy-sell agreements should be tailored to the specific situation of owners, and they should include the method of valuation that will be used for the sale. Having the right lawyer draft this contract can help preserve the leadership of a company and limit interruptions should an owner’s interests be threatened in some manner.
Contact a Committed Houston Business Lawyer for More Information
Business attorney Tim Sutherland advises and represents business owners in and around Houston. Our firm helps with all types of contracts, including buy-sell agreements. To discuss how we can help you, call 713.300.1946 or contact us online.